Earnings Working Against Hindustan Media Ventures Limited's (NSE:HMVL) Share Price

With a price-to-earnings (or "P/E") ratio of 4.1x Hindustan Media Ventures Limited (NSE:HMVL) may be sending very bullish signals at the moment, given that almost half of all companies in India have P/E ratios greater than 15x and even P/E's higher than 37x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

For instance, Hindustan Media Ventures' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Hindustan Media Ventures

Although there are no analyst estimates available for Hindustan Media Ventures, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Hindustan Media Ventures?

In order to justify its P/E ratio, Hindustan Media Ventures would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. As a result, earnings from three years ago have also fallen 53% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 9.6% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Hindustan Media Ventures is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Hindustan Media Ventures revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Hindustan Media Ventures (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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